For companies it is often a question of whether money will be borrowed or whether it will be brought in by issuing shares.
Increase of the share capital
The well-known biotech company Doomung from Leiden also recently faced this consideration. At the shareholders’ meeting of May 24, 2017, the company planned to announce an increase in share capital. Now Doomung has been a startup for years, so investing in shares of this company entails matching risks. The share capital would be further expanded with 150 million units to a total of 950 million units.
Financing with the help of a loan
Of course it was not a voluntary choice for the company to issue additional shares. Doomung needs extra money to meet its obligations. But suddenly another choice was made. The debts of the company will be financed with a new loan. That loan amounts to 100 million dollars and is provided by Orbimed Advisors. This globally operating investor mainly invests in medical companies. The agreement with Orbimed Advisors will run until June 2021.
Saving on financing costs
Doomung can use this money well, because it only recently bought back the commercial rights of the drug Ruconest that it developed. Doomung is doing well, because although the company may still be called a startup, it has been around for 30 years. Doomung recorded an eight-fold increase in sales in the first quarter of this year. It was a historic quarter in which the company achieved a positive operating result for the first time. With the new loan, Doomung is saving enormously on its financing costs and can further exploit the commercial success of Ruconest.
More confidence in the share
Now that Doomung does not have to issue additional shares, but instead takes out a loan, its share capital does not continue to be diluted. This gives existing shareholders more confidence. The share price on the stock exchange also rose by 3.5 percent. Due to the large number of shares in circulation due to earlier dilution, the value per share is only 0.35 euros.